Severe Consequences for 'Shady' Pre-Insolvency Advice

The Australian Investment and Securities Commission (ASIC) recently announced the outcome of a case against Richard Ludwig, the operator of a Queensland-based telecommunications company.

During an investigation into Ludwig’s business, Cap Coast Telecoms, it was discovered that a firm of pre-insolvency advisers appointed by Ludwig was issuing fictitious invoices worth hundreds of thousands of dollars from companies they had set up just before Cap Coast’s liquidation. 

The invoices (worth over $740,000) were paid by Cap Coast before going into liquidation and the cash was then re-distributed to various accounts controlled by Ludwig.

After a tip-off by the liquidators, ASIC investigated the collapse of Cap Coast Telecoms.  During the investigation, emails from the pre-insolvency advisers to Ludwig were discovered, outlining the elaborate plan, and detailing the ways in which they could (a) avoid Ludwig paying various debts and taxes, and (b) protect his assets after the liquidation of Cap Coast.

The investigation resulted in the prosecution of both the pre-insolvency advisers and Richard Ludwig for their fraudulent scheme to strip the company of its assets.

The two owners of the pre-insolvency advisory firm have received prison sentences of five years and four-and-half years respectively for dealing with the proceeds of crime.  Richard Ludwig is currently awaiting sentencing in December for intentionally dealing with the proceeds of crime, and ten counts of breaching his director’s duties in relation to the money laundering charge.

Key Takeaways

The Federal Government has already signalled its commitment to overhauling insolvency laws in Australia with new initiatives relating to safe harbours for directors and corporate restructuring. It will be focussing on other legislative changes moving forward that will help to curb the increasing influence of ‘dodgy’ advisers.  Currently, pre-insolvency advisers are unregulated, and there are many unqualified and “dodgy” operators providing services, often to the unwitting.

If your clients are considering ‘shady’ deals suggested by pre-insolvency advisers to get around an orderly insolvency administration, there are severe consequences for anyone involved. Always ensure the advice your clients are following is from a reputable source.  We would be pleased to help you or your clients navigate their way through what is often a very difficult period for those involved in running a company that is under financial stress.

Be wary of those that offer solutions that are too good to be true!